finance dissertation

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Review of the Literature

Significance of the Study

This is the basic purpose of any study that what significance would it bring? As far as this topic, The Need and Importance of Strong Regulations over Financial Institutions after the Recent Crises is concerned; it is the study of one of the major causes of the recent worst crises. The findings of the research would give the comparison of the both eras, good and bad. Resultantly this would promote the idea of need, importance and implementations of strong regulations on the basis of facts and figures. This study will be helpful for futures students of finance, government policy makers, banks, FSA and many other related institutions.

It is always a good idea to have better understandings of the related topics and terms before looking into the main idea or topic. Dissertation will first of all explain the following questions

 What is the meaning of regulation with respect to financial institutions?

 What are the governing bodies and which authorities control and implement those regulations?

 The detail history of regulations will be given before the current crises.

The history will give the idea that strong and sound regulations and their implementations were one of the major elements which prevented crises. This history will not only help for the better understanding of the topic but also support to the idea that there is an intense need of strong regulations over financial institution after this recent crises.

From proposal

What is the meaning of regulation with respect to financial institutions?

Financial regulations are a form of controlling or supervision, which subjects financial institutions to confident requirements, objective to maintain the wholeness of the financial system and restriction and guidelines.

It maybe controlled by government or non government organization.

If we talk about some aims or objectives of financial regulators then we can say some core objectives of financial regulations are following.

Objectives of Financial Regulations

Some specific objectives of financial regulators are following:

1. Improvement of Confidence in the financial system

2. Financial regulators play a role in providing a licence of financial services

3. As a legal prosecutor in different cases such as market conduct (corporation stocks and other market securities).

4. And play a role in the implementation of laws

Authority by Country

The following is a brief listing of the regulatory authorities in different countries.

Was sind die Leitungsgremien und die Behörden zur Kontrolle und Umsetzung dieser Vorschriften? What are the governing bodies and authorities to control and implement these rules?

IWF und Weltbank IMF and World Bank

Die Weltbank und der IWF sind zwei zwischenstaatlichen Säulen der Struktur des Wirtschafts-und Finanzpolitik, um die Welt. The World Bank and the IMF are two intergovernmental pillars of the structure of economic and financial policy to the world. Ähnlichkeiten zwischen ihnen zu wenig tun, um die Verwirrung zu lösen. Similarities between them do little to resolve the confusion. Oberflächlich der Bank und des IWF weisen viele gemeinsame Merkmale. On the surface of the Bank and the IMF have many common features. Beide sind in einer im Besitz Sinn und von den Regierungen der Mitgliedsstaaten gerichtet. Both are addressed in a sense, and owned by the governments of member states. The People's Republic of China, mit Abstand der bevölkerungsreichste Staat der Erde, ist ein Unternehmen, wie es die weltweit größte industrielle Macht (Vereinigte Staaten). In der Tat praktisch jedem Land der Erde ist ein Mitglied der beiden Institutionen. The People's Republic of China, by far the most populous state on earth, is a company like it), the world's largest industrial powers (the United States. In fact, virtually every country on earth is a member of both institutions. Beide Einrichtungen beschäftigen sich mit wirtschaftlichen Fragen und konzentrieren ihre Bemühungen auf die Ausweitung und Stärkung der Volkswirtschaften ihrer Mitgliedsländer. Both organizations are concerned with economic issues and concentrate their efforts on the expansion and strengthening of the economies of its member countries. Mitarbeiter sowohl der Bank und des IWF erscheinen oft auf internationalen Konferenzen. Employees of both the Bank and the IMF often appear at international conferences. Beide haben ihren Hauptsitz in Washington, DC Both have their headquarters in Washington, DC

Purposes

The World Bank has one central purpose: to promote economic and social progress in developing countries by helping to raise productivity so that their people may live a better and fuller life.

The IMF has a different purpose. The IMF is convinced that a fundamental condition for international prosperity is an orderly monetary system that will encourage trade, create jobs, expand economic activity, and raise living standards throughout the world. By its constitution the IMF is required to oversee and maintain this system, no more and no less.

Der Internationale Währungsfonds und die Weltbank auf einen Blick The International Monetary Fund and the World Bank at a glance

Internationaler Währungsfonds International Monetary Fund

* beaufsichtigt das internationale Währungssystem overseeing the international monetary system

(1) What is financial crisis?

The term financial crisis is applied broadly to a variety of situations in which some financial institutions or assets suddenly lose a large part of their value. In the 19th and early 20th centuries, many financial crises were related with banking crisis, and many recessions concur with these crisis. Other situations which are often called financial crises like stock market collapse and the detonating of other financial bubbles, currency crises, and supreme defaults.

(2) Is Britain is truly bankrupt?

Britain to recover from its present economic position it would have to return to the old formed custom of only spending and investing what the country has in savings.

The United Kingdom has long suffered from the Capitalist sickness of greed and consumption and living beyond ones means. This is in rotate contributed to the non-natural economic boom and subsequent ruined we now find ourselves in.

1. Banking crises (Bank run)

When a bank bears an adventitious rush of withdrawals by depositors that is called a bank run. Since banks lend out most of the cash which they receive in form of deposits from depositors is very difficult to pay to depositors on their suddenly demand. So it becomes a cause of bank in bankruptcy, causing many depositors to lose their savings unless they are covered by deposit insurance. A situation in which bank runs are widely distribution spread is called a systemic banking crisis or just a banking panic. A situation without widely distribution bank runs, but in which banks are unwilling to lend, because they upset that they have inadequate funds available, this is called a credit crunch. In this way, the banks become a reason of a financial crisis.

2. International financial crises

When any countries that declare a fixed exchange rate due to this devalue its currency because of a speculative attack, so it's called a currency crisis or balance of payments crisis. And sovereign default comes when a country fails to pay back its sovereign debt. While devaluation and default could both be not compulsory decisions of the government, they are often perceived to be the involuntary results of a change in investor mental feeling that leads to a sudden stop in capital inflows or a abruptly increase in capital flight.

5. Crises of malevolence

Any organization wishing evils to others always faces a crisis when opposes person or villain individuals use criminal means or other highest degree of tactics for the purpose of expressing enmity or anger toward, or searching gain from, a company, country, or economic system, maybe with the aim of unstable or demolishing it. There are some Sample of crises include product tampering, kidnapping, malicious rumors, terrorist act, and espionage.

(3) What issues arise if a bank becomes insolvent?

From start of the financial crisis:

Many banks in the United Kingdom have been nationalized by the government because of solvency concerns. And there are many Measures have been taken by the Treasury and the Bank of England to encourage UK financial institutions at danger of insolvency. Actions have been taken by the Treasury to protect UK investors with deposits in UK branches of international insolvent banks.

When bank becomes insolvent there are many issues are arrived, including the following:

1. Depositors

Many insolvent banks can't return all deposits to depositors. But some banks are able to pay in insolvency. Deposits held with institutions authorized by the FSA are defending to a limited range by the Financial Services Compensation Scheme. So when any bank is not able to return all deposits then financial services compensation scheme may compensate the depositors.

2. Borrowers

The Financial Services Compensation Scheme have a rules that, if a depositors put money to a bank where he also has savings, the debts will be set-off in behind of the savings when calculating eligibility for compensation under the Financial Services Compensation Scheme. However, in January 2009, the Financial Services Compensation announced a consultation paper assertion changes to the Financial Services Compensation Scheme, including paying compensation to depositors.

3. Prime brokerage

The prime brokerage was holding client assets. If administrations have been unable to return these client assets because of the administration process work. In this response the government approaches this and to make changes to market or regulatory practice.

(4) What caused the financial crisis?

The crisis began in summer 2007 and was initially described in the media as a "credit crunch" or "credit crisis". Diese bezog sich auf die mangelnde Verfügbarkeit von Krediten in der industrialisierten Welt. This was related to the lack of availability of credit in the industrialized world. Am Anfang war der Mangel an Liquidität im Allgemeinen als das Hauptproblem betrachtet, sondern die Krise hat sich als langlebiger als veranschlagt. At the beginning of the lack of liquidity was generally regarded as the main problem, but the crisis is estimated to be as durable. Im September und Oktober 2008 eine Reihe von US-amerikanischen und europäischen Finanzinstitute zusammengebrochen, während andere verstaatlicht wurden oder mit Unterstützung der Regierung zusammen. Collapsed in September and October 2008, a number of U.S. and European financial institutions, while others have been nationalized or together with the support of the government.

* Ample liquidity and low interest rates. This lead to a "explore for yield" by investors in financial markets, which in turn group the development of complex financial instruments using influence to create higher returns for investors.

* Decline of lending standards. The widespread securitization of loans under an "originate to distribute" model intended originating lenders did not have to keep lending standards high as they could transfer the risk of the primary contracts. In the United States sub prime sector, unstable lending practices were also possible because of a weak regulatory system and high demand from investors.

* Remuneration. Bonus structures in financial institutions confident risk-taking; satisfying short-term gains even if these would be reduced or wiped out by losses in the longer term.

* Undervaluation of risk. There was also a big cause of financial crisis is undervaluation of risk. The Competition of highly leveraged structured financial instruments leads to credit risk. So the price reflected competition for the assets rather than a genuine assessment of fundamental credit quality. Additionally, economic conditions were benign for an extended period which led to expectations that they would remain so. In these optimistic conditions highly leveraged instruments remained eye-catching.

* Mark to market accounting. As financial institutions hurried to get better their capital position, they started to sell off assets. This forced selling caused asset prices to fall. Because of the mark to market(www.practicallaw.com/8-107-6820) accounting rules, financial institutions had to readjust asset values in their accounts to reflect the newest market prices, which more destabilized their capital situation.

* Credit rating agencies. Many investors misunderstood the truth that ratings only measure credit quality and do not capture the risk of a decline in market value or liquidity of an instrument. When the ratings agencies started downgrading instruments in the summer of 2007, many investors lost faith in ratings and stopped buying complex instruments altogether.

* Fraud. Fraud was also a big reason in the collapse of some financial institutions, when companies have attracted depositors with deceiving claims about their investment systems. And many rogue traders have reason a big losses at financial institutions have been blame of acting fraudulently in order to hide their trades.

· Recessionary effects

Some financial crises have some actions from outside of the financial sector, like the Wall Street crash of 1987, the financial crisis could have a recessionary effect on the rest of the economy, and there are some theories like as following

These theoretical ideas include the

1. financial accelerator

2. 'flight to quality' and

3. 'Flight to liquidity',

4. And the Kiyotaki-Moore model.

5. Some 'third generation' models of currency crises.

(5) What impact has the financial crisis had on credit markets?

The financial crisis has resulted in:

* Decreased liquidity in the interbank market. Financial institutions have been lending to one another far less in the interbank market than normal. This is because they have been concerned in relation to the creditworthiness of other institutions or have wanted to continue cash reserves for themselves.

* Decreased wholesale funding to banks. The wholesale funding to banks decreased as investor-desire for commercial paper which are issued by banks fell and such investors moved their money to seeming safe havens, such as gold and independent debt.

* Decreased lending and bond issuance. Many Financial institutions of United Kingdom have cash in the form of storage to meet their existing task and have generally been less willing to extend credit to businesses and individuals.

In response, the UK government and the Bank of England(www.practicallaw.com/4-107-6469) have taken various measures to try to strengthen the credit markets.

http://corporate.practicallaw.com/9-383-6743#a510256

Financial Services Authority (FSA)

The single regulator for the UK financial services industry. The FSA is an independent non-governmental body which has been given statutory powers by the Financial Services and Markets Act 2000(www.practicallaw.com/A36104) (FSMA). The FSA is responsible for regulating the UK financial services sector and the promotion of the objectives set out in FSMA. That legislation requires the FSA to: maintain market confidence; promote public awareness; protect consumers; and reduce financial crime.

In den letzten zwei Jahren Financial Services Authority haben die schlimmsten Finanzkrise in mindestens 70 Jahren vor, und zwischen Mitte September und Mitte Oktober letzten Jahres haben wir angesichts einer katastrophalen Zusammenbruch des Vertrauens in die Banking-Systeme der Welt. In the past two years, the Financial Services Authority have the worst financial crisis in at least 70 years before, and between mid-September and mid October last year, we face a catastrophic collapse in confidence in the banking systems in the world. Und das hat zwangsläufig dazu geführt, dass ein Großteil der Arbeit der FSA Top-Management hat den Umgang mit den Herausforderungen, die die Krise produziert gewidmet waren. And that has inevitably meant that much of the work the FSA's top management has to deal with the challenges that were dedicated to producing the crisis.

Es gibt zwei Schwerpunkte haben viel von unserem Leben dominiert. There are two priorities have dominated much of our lives.

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